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'Rehab' Loans Surge in Popularity to Fix Up Properties

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More borrowers are exploring financing options to cover the costs of rehabbing properties they buy. “Rehab” loans are surging in popularity, according to a New York Times article.

“We’re seeing an explosive growth in these loans,” says Ed Brehm with Prospect Mortgage, one of the country’s largest processors of 203(k) loans. The spike in demand is from the higher number of bank-owned properties as well as borrowers who can no longer get home equity loans, he says.

A survey in January from the National Association of REALTORS® found that 35 percent of the homes on the market are either short sales or foreclosures, and of those properties, 37 percent were considered “below” or “well below” average condition. The poor condition may have been from homes left abandoned or damaged from disgruntled home owners who were forced to leave.

The Federal Housing Administration’s 203(k) is particularly seeing an increase in interest among home purchasers. The loan covers the cost of buying the home but also for renovating it, and is paid back like a regular mortgage. The loan can be used for rehabbing the structure of the home to adding new floors and appliances.

Fannie Mae also offers rehab financial assistance as part of its HomePath lending program.